Reaching Upwardly Mobile African-Americans

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For five consecutive years, the number of African-Americans who owned stocks increased. But that ended this past January and February.

This year, only 61% of blacks had money in the stock market, down from 74% last year and approaching the 57% level of stock ownership by blacks in 1998, according to the sixth annual Ariel/Schwab survey of black and white households earning more than $50,000 annually.

White stock ownership is at 79% this year, which is virtually unchanged over the last six years, according to the survey.

Mellody Hobson, president of Ariel Capital Management Inc., Chicago, says the survey, co-sponsored by Ariel and The Charles Schwab Corp., San Francisco, indicates that after experiencing their first bear market, and an especially severe one, many black investors retreated to their conservative bias.

But, she feels it is inevitable that African-Americans will return to the stock market and financial services, in general, once the economy turns around.

“We continue to be an untapped market, in general, for financial services, but the prospects tend to be very good in terms of attracting the African-American sector,” Hobson says.

“As the economy continues to recover, it will be a reason for us to come back to the market.”

But, financial services companies dont have to wait for the economy to improve to start vying for the business of this segment, according to Hobson. In order to attract the African-American market, insurers should send out materials that are less sales in nature and more educational in tone, she says.

“The main thing is to continue to stress education so we can continue to build on our knowledge as it relates to our understanding that bear markets are a part of financial markets,” Hobson says.

“Historical context is helpful in reassuring people that the market goes both ways.”

Bill Hill, a public sector manager in the Detroit office of Colonial Supplemental Insurance, Columbia, S.C., does not agree that African-Americans have turned away from financial services as a result of the bear market.

“The downtrend had an impact, but we continue to move more and more into the mainstream of the economy that we are always going to be a part of,” he says.

He concedes that advertising and communication are not directed to the African-American community in the way they are to the general population.

Moving away from “kitchen-table marketing” and toward worksite marketing is a smart way to reach this market, Hill says, because most middle-income African-American families are two-income households with no one home to host a kitchen-table meeting.

Although anecdotal evidence suggests to some there has been no departure of the African-American consumer from financial services, the Ariel/Schwab survey suggests the reverse is likely true.

Hobson says the reason for the retreat is that African-Americans largely felt that with high unemployment and a sluggish economy, they did not have the “luxury of investing, whereas our white counterparts” understand that fluctuations are part of the natural workings of the market.

Pepper Miller, president of market research and consulting firm, The Hunter-Miller Group Inc., Chicago, says although many African-Americans are increasingly savvy about the stock market, even the most sophisticated tend to have doubts.

“We still have skepticism about the stock market and investments, even though were doing better at learning and getting information via companies that use black churches as a way to reach us,” she says.

“There are many black investment clubs that grew out of church, but still many of us lack information about the stock market,” she adds.

This disconnect is due to blacks coming into the stock market, for the most part, only recently, Hobson says.

“Many of us havent grown up in homes where the stock market was discussed,” she says, stressing that educational materials are important, because “knowledge is power.”

Besides emphasizing education, financial services companies should also be careful not to lump the African-American segment with the general population, says Rupa Ranganathan, ethnic strategist and senior vice president, Strategic Research Institute, New York.

This is a mistake financial services companies often make when developing targeted marketing strategies, simply because the segment, unlike the Hispanic and Asian-American markets, speaks English as a first language, as does the general population, she says.

But this is misguided thinking, because the African-American market is unique in many ways, and therefore wont be reached in the same way as the general population, she says.

“The top TV shows among African-Americans and the general population are different,” Ranganathan says. “The African-American consumer is supposed to spend a lot more time watching TV than the general population, so financial services companies can invest in cable and TV ads for this market.”

Darnell Frazier, marketing analyst, State Farm, Bloomington, Ill., echoes that point.

“We realize its not a homogenous market, its made up of independent segments full of individuals,” she says.

“Were sure to focus on the priorities and needs of the segments and take a holistic approach.”

The younger segment thinks about “financial awareness and fitness,” Frazier says. Boomers are looking for assistance with wealth management.

And, there is “a very strong presence of women who assist in decision-making for their family,” she says. “One of the needs they are usually concerned with is making sure that theyre planning for their childrens education.

“We texture our message to tell them we can assist them in knowing their children can go to college and be part of the American dream.”

Other ways to reach the market run the gamut from Internet sites such as BlackPlanet.com to grassroots-level efforts like attendance at churches, Ranganathan says.

“When other dot-coms were crashing, BlackPlanet.com was growing and having a business model and making sense,” Ranganathan says. “Channels such as these have become strong ways in which insurance companies can connect with the African-American market.”

Ranganathan says that financial services companies have not marketed to this segment in a way that is commensurate with its spending power, “because theyre limited by their own perception.

“The African-American market commands more than half a trillion dollars and its growing,” she says.

Financial services companies should be aware that the African-American market has “certainly got critical mass and theres a lot of viral marketing potential,” she says. “Companies should research the African-American consumer better.”

African-Americans are a significant market opportunity with $645.9 billion in spending power, projected to increase notably, according to The Hunter-Miller Group.

“The African-American market has not been fully penetrated, providing significant opportunities for marketers,” the company says. Among the categories in which the segment remains underserved is financial services, including insurance and investment products, the company says.

“They are younger, urban consumers who are realizing significant social and economic progress,” it says. “This group is responsive to targeted media that recognize their lifestyles and beliefs.”

The African-American consumer generally does not consider products as being for them unless they receive a special invitation to try the products because, historically, they have not been “included,” according to information from The Hunter-Miller Group Web site.

African-Americans are more likely (80%) to buy products from companies that give back to the community with jobs, educational support and other quality of life improvements and are more likely to patronize stores that are “diversity friendly,” according to the site.

African-American targeted media outlets reach 89% of this population. And, the African-American Internet audience has grown to more than 10 million surfers in 2003 who spend a monthly average of 44 hours on the Web, according to Hunter-Miller.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 8, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.